Yen Declines on Signs of Global Recovery

Yen Declines on Signs of Global Recovery, Kan’s Election Loss

By Yasuhiko Seki

July 12 (Bloomberg) -- The yen weakened against all its major counterparts as signs that the global economic recovery is intact sapped demand for Japan’s currency as a refuge.

The yen was near a three-week low versus the euro after Prime Minister Naoto Kan’s party lost control of Japan’s parliament’s upper house, undermining efforts to rein in the world’s largest public debt. The euro gained on a Sole 24 report that Italy’s largest banks will pass stress tests. Canada’s dollar climbed for a fifth-straight day versus the greenback.

“With extreme worries about the fate of the global economy easing, risk aversion is also weakening,” said Tomohiro Nishida, a Tokyo-based foreign-currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The recent bout of yen buying, driven by strong risk aversion, seems to be running out of steam.”

The yen fell to 89.03 per dollar as of 10:02 a.m. in Tokyo from 88.62 last week, after earlier hitting 89.06, the least since June 29. The yen was at 112.32 per euro from 112.01 in New York on July 9, when it reached 112.67, the weakest since June 21. The euro was at $1.2617 from $1.2641 on July 9, when it touched $1.2722, the highest level since May 12.

Canada’s currency rose to C$1.0305 per U.S. dollar from C$1.0337 per U.S. dollar on July 9.

Data, Stress Tests

The yen fell before reports this week forecast to show that European industrial production rose and U.S. initial jobless claims fell.

Factory output in Europe rose 1.2 percent in May following a 0.6 percent advance in the previous month, according to a Bloomberg News survey ahead of the release of the data on July 14. U.S. initial claims for unemployment benefits declined to 447,000 in the week to July 10 from 454,000 the previous week, according to a separate survey before data due on July 15.

The Bank of Italy on July 9 received the results of stress tests on Intesa Sanpaolo SpA, UniCredit SpA, Banca Monte dei Paschi di Siena SpA, Banco Popolare SC and Unione di Banche Italiane SCPA, Sole reported, without saying where it got the information. The results confirmed the lenders may be able to withstand a worsening economy, the Milan-based newspaper said.

European regulators told lenders their planned tests may assume a loss of about 17 percent on Greek debt and 3 percent on Spanish bonds, according to two people briefed on the talks last week. Credit markets have priced in losses of about 60 percent on Greek bonds should the government default.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain dropped to 38,909 on July 6, compared with record net shorts of 113,890 on May 11, figures from the Commodity Futures Trading Commission showed.

Kan’s Loss

The yen weakened further after election results compiled by public broadcaster NHK showed the ruling Democratic Party of Japan won 44 upper-house seats, compared with 51 for the opposition Liberal Democratic Party.

Your Party, a new group founded by former LDP cabinet minister Yoshimi Watanabe, won 10. Half of the 242 seats in the less powerful of Japan’s two houses of parliament were up for grabs.

Kan, who took office a month ago, stoked voter resentment by calling for a debate on whether to raise the 5 percent sales tax, drawing attention to a national debt that amounts to $80,000 per person. Losing his coalition government’s majority will mean he must reach out to smaller groups to ensure smooth passage of legislation to bolster growth and social welfare spending.

“If the loss rattles Japan’s political situation, foreign investors, who loathe political instability, may sell the yen,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd.